Feature Article

Steadily growing cash flow and dividends by adding long-term contracted power generation: That’s been Clearway Energy’s (NYSE: CWEN) successful strategy for the decade plus since former parent NRG Energy (NYSE: NRG) launched it as NRG Yield. And the company continues to thrive under Clearway Group 54.91% of voting shares, 42.12% economic interest), which is owned by TotalEnergies (Paris: TTE, NYSE: TTE) and Blackrock/GIP.

For most of 2024, long-time water utility favorite Essential Utilities (NYSE: WTRG) was unable to affirm previous long-term earnings growth guidance of 5 to 7 percent. This month, it did so again, thanks to amicable natural gas and water rate decisions in Pennsylvania. Home to its cornerstone water franchise and only gas utility—Peoples Natural Gas—the Keystone state is by far Essential’s most important regulatory jurisdiction. And in a 5-0 ruling the Public Utility Commission approved both a $93 million increase and a “weather normalization” mechanism for gas distribution, at a stroke limiting weather-related fluctuations in revenue.

The Dow Jones Utility Average’s year to date return is now 20.5 percent. That’s a decline of around -1.4 percent since the Federal Reserve pivoted to lower interest rates on September 18. The DJUA is once again lagging well behind the S&P 500, which as of Friday’s close was sitting on a 27 percent return. And it’s well behind the Nasdaq 100’s 26 percent plus return as well.

Just weeks after raising its final dividend for FY2024 (end June 30), Spark New Zealand Ltd (NZ: SPK, OTC: SPKKY) announced a -9.1 percent cut in its FY2025 dividend. Last month, I noted management’s dour forecast for FY2025. And it’s now doubled down on that outlook, cutting EBITDA guidance to a range of NZD1.12 to NZD1.18 billion from the previous NZD1.17 to NZD1.22 billion. The telecom also cut its planned capital expenditures to NZD415 to NZD435 million, versus previous guidance for NZD460 to NZD480 million.

Elections have consequences. In my view, last week’s outcome is much better explained by who didn’t vote than who did—as apparently almost one in seven 2020 Biden voters didn’t pull the lever for Harris in 2024 But whatever the reason, the results this time will likely have a profound impact on investors. The trick following every election is deciding what consequences are worth betting on. Unfortunately, it’s a losers’ game for many investors.

This week, TC Energy (TSX: TRP, NYSE: TRP) closed the spin off of its liquids pipelines business as South Bow (TSX: SOBO, NYSE: SOBO). TC shareholders receive 0.2 shares of SOBO for every TRP currently held. And the new company will begin trading NYSE “on or about” October 8, with an initial dividend to be declared November 7. Profitable spinoffs unlock value because the new company is more valuable on its own. That should be the case here.

In a year of foolish politics-based investing decisions, giving up on Mexico ranks highly. Since mid-April, the Peso has lost more than -15 percent of its US dollar value. And that’s pushed America Movil (Mexico: AMXB, NYSE: AMX) ADRs down -10.8 percent year to date, despite consistent strong operating results. The politics case for selling Mexico partly stems from the overwhelming victory of the Morena party in the country’s recent elections, resulting in a controversial justice system overhaul. The other half is fear of potential dislocations from a prospective Trump presidency.

There’s less than three months to go in 2024. And utilities and essential services stocks are already set for their most profitable year this decade. In fact, just a normal seasonally strong Q4 performance would produce the Dow Jones Utility Average’s biggest gains since 2000. The DJUA’s 23.9 percent year-to-date gain puts it ahead of the S&P 500’s 20.8 percent, as well as the Nasdaq 100’s 18.4 percent. And utilities have so far outpaced rivals in the equity income universe as well, with the S&P REIT Index ahead just 12.9 percent and the Dow Jones Select Dividend Index (DVY) up 17.3 percent.

During the first nine months of 2024, 116 essential services companies tracked in the Utility Report Card raised dividends at least once. Eight reduced or eliminated their payouts, disproportionately from the telecom sector. Telephone and Data Systems (NYSE: TDS) cut its payout -79 percent. That reflects the proposed sale of wireless operations of its US Cellular Corp (NYSE: USM) affiliate to T-Mobile US (NSDQ: TMUS) for $4.4 billion.

In August 2023, I highlighted the communications sector in a feature piece titled “Telecom Has a Future, But Not Every Company Does.” My premise was communications is more essential than ever to a functioning world. And as more industries adopt artificial intelligence, it will only become more vital, even as total global penetration of smart phones tops 100 percent later this decade.